- A violent windstorm blows the roof off of
your building. An explosion in your building knocks out the electricity
for five weeks. An employee drops a lighted cigarette into the trash
can before he leaves for the night.
Windstorms, fires, riots, sabotage...
Could your business survive a major emergency?
Businesses that recover quickly are those that have
planned in advance. They know what they need to do as soon as a disaster
strikes and, most importantly, they have purchased the right insurance
to finance their recovery. It's also important to develop and maintain
an adequate recovery plan to protect yourself against legal liability
for the losses that might result from a disaster.
The Catastrophe Recovery Strategy
Minimize the risk of damage in advance of an
- Reduce the chance of fire
Train employees in fire safety, particularly those responsible for
storage areas, indoor and outdoor housekeeping and maintenance, and
operations where open flames or flammable substances are used; ban smoking
or limit it to designated areas; and modernize the elecctrical system
-- a large percentage of non-residential fires are caused by faulty
- Prevent a small fire from becoming a big
Make sure you have the appropriate fire extinguishers on hand and
in working order. Locate your business in a fire-resistive building
-- a structure made of non-combustible materials with fire walls that
create barriers to the spread of fire -- and in a building with a fire
alaarm system connected to the local fire department.
Limit storm-related damage
There's no way to lower the risk of a natural disaster, like a violent
windstorm or earthquake, but buildings can be strengthened to reduce the
physical damage they cause. Make sure your building conforms to damage-resistance
Develop a disaster recovery plan
Keep duplicate records
If your accounts receivable or other business records are damaged,
revenue will be lost and recovery will be slower. Reconstruction of data
is difficult, sometimes impossible. To avoid such problems, back up computerized
data files monthly and store them off the premises.
Keep copies of important records and documents in a bank safe deposit
box and make sure they're up-to-date. Compile lists of equipment you own
or lease, by type, model, and serial number. Under several federal laws,
if you fail to maintain accurate business records and to safeguard those
records, you may be held liable.
Identify critical business activities
and the resources needed to support them
Many businesses can't afford to close down while the premises are
being repaired because the people who once depended on their services
or products will quickly find a replacement.
Decide what you must do to retain market share. If you need to continue
operations, determine what you require to run the business at another
location. Which activities should be continued and which employees would
be needed to carry out the work? What equipment, machinery, tools and
supplies would be required? Are your employees highly skilled? Could you
easily re-hire workers if you were forced to lay off a part of your work
Find alternative facilities, equipment
and supplies, and located qualified contractors
Plan for the worst possible scenario and do your research before a
If you're dependent on computers, contact your computer hardware vendor.
The vendor may know of a service that provides equipment in the event
of a disaster. Some will allow you to test out your emergency plan. If
you need other specialized equipment or a special environment, consider
a reciprocal agreement -- making arrangements to share facilities with
someone in the same business in a different community. Sometimes two businesses
can make arrangements to help each other get back into operation in the
event of a loss by lending space and equipment or selling part of their
merchandise. You should also look into the possibility of leasing equipment
and machinery or buying used items.
If your business can be operated from almost any empty office or store,
you may not need to make advance arrangements for alternative facilities.
Make lists of firms that can supply equipment, tools and raw materials,
and, if you own a store, the merchandise you'll need. The more specialized
the item or service, the more important it is to locate a dependable source
Contractors are in great demand after a widespread disaster. Even if
the damage is on a small scale, you'll get back into business faster if
you've identified the kinds of services you'll need to renovate your damaged
premises and the reliable firms that can provide these services. Don't
forget that the site has to be cleaned up -- water and debris removed,
for example -- before renovations can begin. Try to get an advance commitment
from at least one contractor to respond to your needs..
Set up an emergency plan and train
employees how to carry it out
The first steps that must be taken after a disaster are emergency
measures. Knowing what to do when a disaster strikes reduces panic reactions.
Make sure employees know whom to notify about the disaster and what measures
to take to preserve life and limit property losses. These should include
whom to contact for medial assistance, how to call the fire department
and evacuate the building and any special precautions that should be taken
before leaving the premises. Different types of disasters may call for
different kinds of measures.
Consider the things you may need initially during the emergency. Do you
need a back-up source of power? If you're dependent on computers, find
out whether a generator can be used to run your computer system. Do you
have a back-up communications system? When electric power is knocked out,
telephone lines may still function but electronic phones will not. If
you're likely to have cash-flow problems, check into the availability
of loans and extensions of credit.
Keep on hand a first aid kit, a supply of flashlights, batteries, candles
and candle holders, and matches. Are you likely to need food and water?
Decide how to secure the premises after the disaster and the building
supplies you might need to cover holes in the roof and windows to prevent
Write out each step of the plan and assign responsibilities to employees
in clear and simple language. If you employ workers whose native language
is not English, assign someone to make sure these workers understand what
they're required to do. Distribute copies of the plan to each employee.
Practice the procedures set out in the emergency response plan with regular,
Compile a list of important phone
numbers and addresses
Make sure you can get in touch with key people after the disaster.
The list should include local and state emergency management agencies,
major clients, contractors, suppliers, Realtors, financial institutions,
insurance agents and insurance company claim representatives. The list
should also include your own employees and company officials. Keep copies
off the premises -- at home and at a more remote location in case the
disaster is widespread..
Decide on a communications strategy
to prevent loss of clients/customers
Whether you decide to wait out the reconstruction period or relocate
to temporary premises, current clients and those who use your services
or products regularly should know how to get in touch with you, and when
and where you expect to reopen your business. Otherwise many will assume
that you'll be out of action for a long time.
Among the possibilities to explore, depending on the circumstances, are
posting notices outside your premises or elsewhere, contacting clients
by phone or by mail, placing a notice in local newspapers and asking your
friends and acquaintances in the local business community to help you
disseminate the information.
Consider also the role the media may plan in a crisis. If your company
is likely to be interviewed, have a written plan for dealing with reporters.
To improve your media skills in a crisis, watch talk shows and news programs
to see how other people handle such situations..
Review your insurance program.
Make sure you have sufficient coverage to pay for the indirect costs of
the disaster -- the disruption to your business -- as well as the cost
of repair or rebuilding.
For a business, the cost of a disaster can extend beyond the physical
damage to the premises, equipment, furniture and other business property.
There's the potential loss of income while the premises are unusable.
In addition, if you can't afford to close up shop during the repair period,
there's the extra expense of keeping the business going at a temporary
location. Your disaster recovery strategy should include a detailed review
of your insurance policies to ensure there are not gaps in coverage..
Take a look at your property insurance policy. Is your property --
the building and its contents -- insured for current replacement prices?
Don't forget to insure any improvements you've made to the property, such
as new storage cabinets and carpets. There may be limitations on what
the policy will pay for certain items. If you need higher amounts, discuss
this with your agent.
Typical property insurance policies exclude coverage for flood damage.
If you're located in a flood zone, you'll probably have to buy a separate
policy from the National Flood Insurance Program.
If your building is damaged beyond repair, you may have to tear it down.
In addition, the federal government requires buildings in flood zones
that don't conform to flood plain building codes to be torn down if the
damage exceeds 50 percent of their market value. Consider purchasing ordinance
or law coverage to help pay for the extra costs or tearing down the structure
and rebuilding it..
Business Interruption Insurance
After every disaster, some businesses are forced to close their doors
because they didn't plan for the costs of a disruption to their operations.
Business interruption insurance compensates for income lost when you have
to vacate the premises due to disaster-related damage (you must be covered
for the physical damage that caused the disruption).
Like other kinds of insurance, the price is related to the risk of fire
or other disaster damaging the policyholder's premises.
Business interruption insurance covers the profits a business would have
earned, based on its own financial records, had the disaster not occurred.
It also pays for the operating expenses that continue, such as payroll,
even though business activities have come to a temporary halt. Make sure
the policy limits are sufficient to cover your company for more than a
few days. After a major disaster, it can take much longer than many people
anticipate to get a business back on track..
Extra Expense Insurance
For some businesses, the cost of relocating can be greater that the
revenue loss. Extra expense insurance reimburses you for what you spend,
over and above your normal operating expenses, to avoid having to shut
down during the restoration period. As with business interruption insurance,
the price of extra expense insurance varies with the industry and the
likelihood of disaster-related damage..
Review on a regular basis all
components of your disaster recovery strategy -- fire safety and emergency
preparedness measures, business continuation and building repair plans,
and your insurance program. Communicate changes to key employees.
If you need help in identifying hazardous and assessing risk or more
information on how to develop a disaster recovery plan, call your insurance
company and ask for loss control service.